With the cost of living increasing at an alarming rate and uncertainty in many markets, people are turning to personal loans. Whether you need a loan to pay for a wedding that was postponed due to the pandemic, or you’ve decided the cost of moving is just too much and instead, you’re making improvements to your existing property, taking out a personal loan could be the financial solution you’ve been looking for.
What is a personal loan?
A personal loan is a type of short to moderate-term flexible lending. Like any type of loan, a personal loan is a form of debt that must be repaid over a pre-agreed period.
Unlike other types of loans, personal loans tend to be unsecured, so you don’t need to put any collateral up should you default on payments. It’s the relative flexibility that makes personal loans a great option for people who need an extra injection of cash for a specific purpose.
Typically, personal loans can be used to buy a new car, make improvements to the home, and can even help with debt consolidation.
Why you might have been refused
If you’ve applied for a personal loan, and have been refused, the first thing you should do is understand why. This will help you understand how you can improve your profile.
The most common reasons for having a loan refused are:
- Poor credit history: If you have a credit card and you’ve missed payments or have maxed out your limit, this can have an impact on your score. Similarly, if you have any CCJs (Country Court Judgements) or a history of missing or late payments, you may be deemed as an untrustworthy recipient of money by a lender.
- Applied for credit before: If you’ve applied for a number of loans or credit cards in the past, this could flag to your lender that you need constant cash top-ups. This suggests you’re unable to manage your finances.
- Unstable income: If you’re self-employed or you seem to move from one job to another, the lender may be cautious about lending to someone who doesn’t have a steady or stable income.
- No credit history: Ironically, not all credit is bad when applying for a loan. If you’ve never borrowed money before, the lender is unable to assess how reliable you’ll be at paying back the loan.
Since every lender has its set requirements, it might be that you get refused by one lender but accepted by another. So it’s always worth shopping around for the best terms.